Evaluate the role of the state in achieving economic development.
4.3.3 · 1.1.6
State was crucial- Five-year plans and directed credit built steel, ships and chips.
- Export targets disciplined firms that got support.
- Mass public education created human capital.
Limits and costs- Over-borrowing by favoured chaebol led to 1997.
- Concentrated market power persists today.
- Labour rights were suppressed under military rule.
ChainState directs credit to target industries → firms invest and gain economies of scale → export targets force them to compete abroad → productivity and LRAS ↑ → rising real incomes.
JudgmentState-led growth worked when combined with export discipline and education, so failing firms lost support. It is harder to copy today: WTO rules limit subsidies, and the state's role fits catch-up better than frontier innovation.
Assess export-led growth as a route to high income.
4.3.3 · 4.1.2
Korea supports it- From under $200 per head (1960) to ~$38,000.
- World markets gave scale a small home market could not.
- Moved up the value chain into chips and cars.
Korea warns against it- Exports ~46% of GDP: exposed to global shocks.
- Chip cycle: growth 1.6% in 2023 when prices crashed.
- Tariffs: 15% US tariff from 2025.
ChainExports ↑ → (X−M) ↑ and AD ↑ → firms invest in larger, more modern plants → productivity and LRAS ↑ → higher wages and living standards.
JudgmentExport-led growth delivered high income, but only because Korea kept upgrading what it exports. It works best when world markets are open; today's tariffs and chip controls make it riskier for followers like Vietnam.
Evaluate policies to raise a country's birth rate.
2.3 · 4.5
Some effect- Births rose 6.7% in 2025; fertility 0.72 (2023) → 0.80 (2025).
- Longer parental leave and cash for births.
- Marriages rose after the pandemic.
Weak effect- Hundreds of trillions of won spent since 2006 with fertility still the world's lowest.
- Housing and education costs dominate.
- Long hours and the career penalty for women.
ChainLower cost of raising children → more births → larger workforce in 20+ years → LRAS and tax base ↑, dependency ratio ↓ in the long run.
JudgmentCash incentives treat a symptom. Deeper causes (housing, work culture, education pressure) need structural reform, and any effect on the workforce takes over 20 years. Migration and productivity matter more in the medium term.
Evaluate the causes and consequences of a currency crisis.
4.4 · 4.1.8
Causes (1997)- Short-term dollar borrowing by banks and chaebol.
- Pegged-style won and falling reserves.
- Contagion from Thailand; capital flight.
Consequences- Won roughly halved; GDP fell ~5% in 1998.
- IMF conditions: high rates, bank closures, reforms.
- Fast V-shaped recovery; stronger institutions after.
ChainInvestors pull money out → currency falls → dollar debts cost more in won → firms and banks fail → investment and output collapse.
JudgmentThe crisis came from private foreign-currency debt, not government overspending. IMF austerity deepened the short-run fall, but reforms and a cheap won drove a fast export-led recovery. Korea then built large reserves as insurance.
Assess the risks of an economy depending on a narrow range of exports.
2.1.4 · 2.5
High risk- Chips ~half of exports in September 2026.
- Memory prices are highly cyclical.
- A few firms (Samsung, SK Hynix) dominate.
Manageable- Cars, ships and batteries also at record highs.
- Korea leads in high-bandwidth memory for AI, with few rivals.
- Record current account surplus builds a buffer.
ChainWorld chip prices fall → export revenue ↓ → (X−M) ↓ and investment ↓ → AD ↓ via the multiplier → slower growth, weaker won.
JudgmentConcentration in a high-tech product with high barriers to entry is less risky than dependence on a raw commodity, but it still makes growth volatile. Compare Botswana's diamonds or Nigeria's oil.
Discuss the contribution of education and R&D to long-run growth.
2.3 · 2.5
Large contribution- R&D 4.9% of GDP (2023), second in the world.
- Around 70% of young adults have a degree, the highest in the OECD.
- Moved from copying technology to leading in memory chips.
Limits- Graduate over-supply and fierce competition for chaebol jobs.
- Private tutoring costs add to low fertility.
- Service-sector productivity remains low.
ChainMore spending on education and R&D → human capital and new technology ↑ → labour productivity ↑ → LRAS shifts right → non-inflationary growth.
JudgmentHuman capital was central to Korea's success, but returns fall when the economy over-invests in credentials. Quality and the match between skills and jobs matter more than the quantity of degrees.
Evaluate the impact of high household debt on an economy.
2.2 · 4.4
Harmful- Debt ~81% of GDP; earlier near 100%.
- Interest payments limit consumption.
- Rate rises hit households hard.
Less harmful- Debt is backed by property; low default rates.
- Ratio falling to a ten-year low.
- Loan caps let policy target housing directly.
ChainHigh household debt → more income spent on interest → less consumption → weaker AD → if rates rise or house prices fall, defaults and a negative wealth effect.
JudgmentThe risk depends on interest rates and house prices. With rates rising in 2026 and Seoul prices high, debt makes the economy more sensitive to monetary policy.
Assess the impact of tariffs on an export-dependent economy.
4.1.6
Significant- Exports to the US fell 3.8% in 2025.
- 15% US tariff on cars and most goods.
- $350 bn investment pledge moves production to the US.
Limited- Total exports still hit a record $710 bn in 2025.
- Exports to ASEAN rose 7.4%: trade diversion.
- AI chips have few substitutes; demand is price inelastic.
ChainUS tariff ↑ → Korean goods dearer in the US → US demand for them ↓ → exporters cut prices or move production to the US → fewer jobs and less investment at home.
JudgmentImpact depends on price elasticity of demand and alternatives. Cars, which have close substitutes, are hit harder than high-bandwidth memory chips.
Discuss whether economic growth reduces poverty for all groups.
4.2 · 2.1.1
Yes- Absolute poverty largely eliminated since the 1960s.
- Early growth widely shared after land reform.
- Elderly poverty falling as pensions mature.
Not for all- Elderly poverty 39.7%, highest in the OECD.
- Non-regular workers and small-firm staff left behind.
- Wealth gap at a record, driven by Seoul housing.
ChainGrowth → more jobs and higher wages → poverty ↓ for workers → but people outside work rely on transfers → poverty persists where welfare is thin.
JudgmentGrowth reduces absolute poverty, but relative poverty depends on the welfare system. Korea grew rich before building a full pension system, so older people missed out.
Evaluate whether a central bank should raise interest rates after an oil price shock.
2.6.2 · 2.1.2
Raise rates- Inflation 3.2% in June 2026, above target.
- Weak won adds to import prices.
- Seoul house prices and household debt rising.
Hold rates- Oil shock is cost-push: rates cannot lower oil prices.
- Higher rates hurt indebted households.
- Shock may be temporary.
ChainRates ↑ → borrowing costs ↑, won ↑ → consumption and import prices ↓ → AD ↓ → inflation and expectations ↓.
JudgmentRate rises are justified if second-round effects (wages, expectations) and strong demand appear. In 2026 Korea had both a chip boom and rising house prices, so the Bank of Korea raised rates to 3.0%.